Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if it is right for you. The Department of Housing and Urban Development (HUD) insurers these loans through its Federal Housing Administration (FHA).  Medicare Sherpa compiled our "10 things you should know about reverse mortgages" from the FHA. This simple formula may put thousands in your pocket today -

More Valuable the Home + the Older You Are + the Lower the Interest = the More You Can Borrow

1.  What is a Reverse Mortgage?

A Reverse Mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash.  Unlike a traditional home equity loan or a second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.  HUD's reverse mortgage provides these benefits, and it is federally-insured.

2. Can I qualify for a HUD Reverse Mortgage?

To be eligible for a HUD Reverse Mortgage, the FHA requires that the borrower is -

• a homeowner,
• 62 years of age or older,
• own your home outright,
• have a mortgage balance that can be paid off at closing, and
• must live in the home

You are also required to receive consumer counseling services prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone of a HUD-approved counseling agency and a list of FHA approved lenders.

3. Can I apply if I didn't buy my house with FHA mortgage insurance?

Yes, it doesn't matter if you bought your home with or without FHA mortgage insurance. Your new HUD Reverse Mortgage will be a new FHA-insured mortgage loan.

4. What types of homes are eligible?

Your home must be a single family dwelling or a two to four unit property you own and occupy. Townhouses, detached homes, units in condos, and some manufactured homes are eligible.

5. What's the difference between a Reverse Mortgage and Bank Home Equity Loan?

Second mortgage or home equity loans require sufficient income to debt ratios to qualify for the loan, and you are required to make monthly mortgage payments.  The Reverse Mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits in your area, which ever is less.

Generally, the more valuable the home, the older you are, the lower the interest, the more you can borrow. You don't make payments because the loan is not due as long as the house is your principal residence.

6. Can the lender take my house away if I outlive the loan?

NO! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.

7. Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash received from the reverse mortgage, plus interest and other fees, to the holder. The remaining equity in your home, if any, belongs to you or your heirs. None of your other assets will be affected by HUD's Reverse Mortgage loan. This debt will never be passed along to the estate or heirs.

8. How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits in your area, whichever is less.  Generally, the more valuable your home is, the older you are, the lower the interest rate, the more you can borrow.

9. Should I use an estate planning service to find a Reverse Mortgage lender?

NO!  HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a HUD-approved lender!  HUD provides this information for FREE, and HUD-approved housing counseling agencies are available for FREE, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. You can contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone of a HUD-approved counseling agency and a list of FHA approved lenders.

10. How can I receive my payout?

• Tenure - equal monthly payments as long as one borrower lives and continues to occupy the property as a principal address
• Term - equal monthly payments for a predetermined fixed period of months
• Line of Credit - unscheduled payments or installments, at times and in amounts of borrower's choosing until the line of credit is exhausted
• Modified Tenure - combination of line of credit with monthly payments to borrower for a long as borrower remains in home
• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower

The loan is repaid when you sell your home or your home is sold when it is left to your estate. With today's low interest rates and as the housing market continues to recover, you may find that you have hundreds of thousands of equity that you can use at your discretion.  If you are facing foreclosure, you need to act now!

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